App-only startup bank Starling has been provisionally licensed by Britain’s banking watchdogs and plans to launch to the public in January next year.
Starling on Wednesday announced it has received a restricted banking licence from the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), meaning it can now hold deposits and operate as a bank with certain restrictions.
If everything goes to plan, the FCA and PRA will lift the restrictions and give it a full licence once the bank proves itself.
CEO and founder Anne Boden tells BI: “The banking licence is much more structured than it was years ago. Back in 2013, the regulators changed the rules so that you could go for a two stage licence process. You could get an authorization with restrictions and then spend several months working on testing all your systems before you lifted those restrictions and then go and launch to the general public.”
London-based Starling, founded in 2014, is one of a number of digital-only challenger banks springing up across the UK at the moment. App-only Atom Bank and Tandem have both also been licensed by the regulator, with Atom already open to customers. Mondo, which currently operates a pre-paid card, is the in the final stages of securing a restricted licence.
Boden, the former COO of Allied Irish Bank, tells BI: “This new way of authorization has allowed a category of new banks that are coming to market to succeed. You work collaboratively with the regulator until you’re ready to submit your licence application. We submitted our licence application at the end of last year and now we’ve been authorised.”
How will Starling stand out in such a crowded market? Boden says: “We are very much a technology-focused organisation. We’re all about the day-to-day transactions that go through your account. We’re offering a huge amount of differentiation from the insight we can take from that data.
“Imagine an account where every time you make a transaction or interact with your bank in some shape or form, we can actually use that to help you with your day-to-day financial life. The more you use the account, the more feedback you get on how you’re doing against your target and your goals. We hope we can use customer data for their benefit rather than to cross-sell them additional products.”
Mondo’s CEO Tom Blomfield, who was CTO at Starling before setting up the rival company, told BI recently that his business will have to raise £15-20 million to get its restricted licence upgraded to a full licence once it eventually comes, as part of capital requirements requested by the regulator. Will Starling be raising money?
“We don’t at the moment know specifically what the licence requirements will be but we believe that’s sufficient,” says Boden, referencing the $70 million (£52.9 million) Starling raised in January. Starling is backed by algorithmic trader and investment manager Harold McPike.
Starling recently said goodbye to its second CTO since inception, as Mark Hipperson followed Blomfield out the door in May.
Boden says: “Startup organisations go through lots of stages. We’re growing and changing all the time. At different stages in the organisation you need different skill sets. People joining and leaving, sometimes it’s what the organisation needs to do. We have a great team here at Starling and it’s the right team for the position we’re in.”
Starling, based near Charing Cross in London, currently has a team of 30 and is “growing fast,” Boden says.